Shares gold wow buy of Activision Blizzard (NASDAQ:ATVI) were up modestly in after hours trading after the company released first quarter earnings that beat Wall Street expectations. The company also raised full year earnings guidance to 65 cents per share on a GAAP basis (up from 63 cents) and to 95 cents per share on a non GAAP basis (up from 94 cents). Subscribers to the company's role playing game World of Warcraft held steady at 10.2 million, even with the quarter before, after losses in previous quarters.

In short, the first quarter of 2012 was a success for the company; but that is nothing new. Activision has grown remarkably and steadily to become the world's largest video game publisher by market capitalization. And what is particularly surprising about the company and the stock is how steady that growth has been. ATVI has a beta of only 0.58, and its ten year chart shows a solidly steady upward trend: [click to enlarge]

Over the past 10 years, ATVI has returned a solid 8.36% annually, not including annual dividends paid from 2010 2012 totaling 49.5 cents. In short, it trades far more like an stable, old line manufacturer than a more modern tech stock. Given Activision's history its games go back to the Atari 2600 in the early 1980s this makes sense.

As such, at current valuations, Activision looks like a smart long term holding. At Wednesday's close of $12.40, the stock trades at 19 times GAAP guidance, but just 13 times non GAAP guidance. Backing out the company's $2.90 per share in cash net of long term liabilities, ATVI can be had for just ten times 2012 non GAAP earnings.

Free cash flow has been solid as well, totaling nearly $3.3 billion over the past three years. (First quarter FCF was weak, due to the seasonal nature of the company's accounting and a substantial increase in the deferred revenue balance.) Given the company's $10 billion enterprise value, annual FCF in the range of $1.1 billion provides a solid return.

In short, nothing stands out as a truly compelling or awe inspiring reason to buy Activision Blizzard. Its long term growth rate has been solid, but unspectacular; analysts expect much of the same going forward. Other than a sharp drop in the 2008 09 financial crisis when the broad market fell some 50% and the 2007 merger with Blizzard, then owned by Vivendi (OTCPK:VIVHY) there haven't been newsworthy peaks, or terrifying valleys, in the company's stock. Activision has simply produced solid growth and return on equity, creating new blockbusters (such as the Call of Duty franchise and World of Warcraft) to replace old ones (such as Tony Hawk skateboarding games and the Guitar Hero series).

Investors now seem to be questioning whether the company can continue that success. WoW is now seven years old, facing increased competition (such as that of Electronic Arts' (NASDAQ:EA) Star Wars RPG) and, as noted, facing lower subscriber numbers. EA's Star Wars game itself lost 400,000 subscribers in the fourth quarter, raising concerns that the RPG model as a whole is losing steam. Adding further pressure, sales of all video games fell 25% year over year in March, according to NPD Group, though its figures only include in store purchases, as opposed to digital downloads.

So, can Activision persevere in the current climate? The company is optimistic about new franchises, including next week's release of Diablo III; the company on the Q1 conference call also pointed to new releases in the Call of Duty and Skylander series, along with new content to reinvigorate the World of Warcraft franchise. It's obviously impossible to predict whether Activision will find a new blockbuster or resurrect an old one but investors should remember that the company has successfully navigated this very competitive market for over 40 years now. At some point, management should get the benefit of the doubt. In addition, there are several bullish factors for ATVI investors, both in the short and long term:As noted, ATVI currently trades at just 10x 2012 non GAAP guidance when backing out its substantial net cash balance. But, if history is any indication, that guidance will likely be exceeded, and the slight raise after the first quarter should provide more evidence that Activision Blizzard's 2012 results will outstrip its initial projections. Here is a look at the company's initial guidance and results over the past four years:

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